FOREX – Euro fights back encouraged by negotiations end speculation

The new hope for positive outcome in Greek debt talks with the euro zone partners, gave a big boost to the European currency. Combined with the huge spike in European yields, these new development in the negotiations pushed the euro to its best position in the last three months, and contributed for the U.S dollar fall.

In its biggest drop in 24 hours since last July, the dollar index measured against six major currencies, dropped 1.5 percent to 95.897. After it climbed 2 percent in one night, the euro looked down on the dollar from $1.1155, while the American currency made a fall to the yen as well, and now it’s on 124.04 yen.

Steven Englander, CitiFX head G10 strategist, stated that the speculators were short of euros, and full of dollars which was obvious from the violence of the shift. According to him, the main reason was the data from the EU that showed an unusually big increase in terms of deadlines and inflation from the European Central Bank. Apparently, their last easing campaign is on its way, said Englander.

Other European shares pulling up also.The Italian, Portuguese and Spanish yields repeated their biggest highs from this year, while Germans 10 – year Bund yields made their biggest jump in over three years and came to 0.68 percent.

Mari Iwashita, chief market economist at SMBC Friend Securities believes that now that volatility is back in the European bond markets, the investors are getting nervous. A possibility of another round of chaos brings fear, she said and added that since the end of April and the great losses on euro zone debt, many players are still recovering.

Expectations are the central bank will stand on its commitment to the trillion euro asset purchase programme.
After the European commission, the International Monetary Fund and the ECB came to agreement of cash for reform deal for Greece in order to end the four months debt status quo situation, the euro got even stronger.

Although there is no certainty that Greece’s Prime Minister Alexis Tsipras and his leftist government would accept the proposal, stock markets went all in for the acceptance option.

Dealers believe that the size of the euro explosion and its speed could argue for consolidation. But the technical background looked better after a break of three weeks average at $1.1132. Next target was $1.1210 and if gets there it could trigger a $1.1325 zone move.

But there are some new strength sources for the U.S dollar as well, such as the payrolls report that are coming on Friday and their economic data which is yet to come. For the time being, the dollar’s fall only lifted the price on other currencies and crude oil up.

The Australian dollar made a 2.3 percent jump after the Reserve Bank of Australia shied away from foreshadowing cuts in interest rates.

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